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Travel 2nd August 2018 - 4 min read

Dynamic hotel pricing: what do I need to know?

By Al Norman

Hotel season is upon us. Almost every webinar seems to be occupied with one question: should we use fixed or dynamic hotel rates?

A best practice for hotel programmes is to have a hybrid approach including a mix of dynamic discounts and preferred fixed rates.

The challenge is that introducing dynamic rates requires new innovative metrics to prove savings and to identify ongoing opportunities. Few companies use these metrics today.

Dynamic pricing requires more dynamic analytics. Here are 8 key performance indicators (KPIs) that programs need to introduce. Hint: your TMC or current data solution provider will most likely not have most of them.

1. New Rate Categories

In a hybrid program, Preferred and Non-Preferred Hotel property rate categories are no longer enough. We need to flag specific hotels as having preferred (flat rate), dynamic (percentage off), or non-preferred (no negotiation) rates. It would also be valuable to add a chain deal rate category. These rate categories allow you to understand what is driving each booked rate.

2. Program Savings Calculations

In any Procurement category, you need to demonstrate if you saved money each year and how successful any negotiations were. Dynamic hotel pricing introduces new challenges to how you quantify the value. Recommended approaches include:

  • In the first year that a hotel property is converted from a flat rate to a dynamic rate, compare Average Daily Rate (ADR) by property year-over-year to examine the percentage difference. Was the move to dynamic pricing beneficial? Do you need a deeper discount?
  • In year 2+ of a dynamic program, calculate procurement savings based on getting a better percentage discount each year. This negotiated percentage discount change is also how airline negotiation savings are typically calculated.
  • Compare city-level average daily rate (ADR) over time to discover what incremental booked rate savings are being achieved year-over-year based on the mix of hotels. Has ADR in a city gone up or down?
  • Include Track Booked Rate vs. Best Available Rate (BAR) on every hotel booking. This will give you the true savings versus no discount. Unfortunately, TMCs are not yet capturing or storing this data like they do for Lowest Logical Airfare (LLA) calculations on Air.

3. Rate Availability Analysis

Based on our analysis 15-25% of the time a preferred (flat) rate is not available to be booked. To determine if a hotel property is a candidate to move from a preferred rate to a dynamic rate, analyse how often the booked rate was higher or lower than the preferred rate. In hotels with large variations, a dynamic approach may be better.

4. City Strategies

A city-level strategic analysis of booked properties and spend has always been necessary to manage your program throughout the year. With dynamic rates, it is essential. The city-level strategy must now include the rate categories defined above, so you can understand what is influencing ADR and hotel adoption. You can then decide which hotels stay, get removed, need share shift, or need re-negotiation within the program.

5. Hotel Rate Caps

Booked hotel rates will fluctuate during periods of high city demand and could easily become unreasonable. A flat rate will no longer act as a property price cap when a dynamic rate is in place. You will need to implement city caps and a new policy to drive people to lower priced or lower class hotels when BAR spikes.

6. Hotel Advanced Purchase Analysis

Hotel chains themselves use demand-based dynamic pricing strategies more aggressively in the daily pricing of rooms. Without a flat rate, the potential savings from advanced purchase of hotels become a substantial savings opportunity. Tools like TripBAM and Yapta are finding price drop opportunities, but not the advanced purchase savings. We have seen an Advance purchase savings of between 10-15% in many cases.

7. Day of Week Hotel Booking Patterns

BAR, and thus your dynamic rate, will fluctuate by season and by day of the week. A Monday night or Tuesday night stay is typically more expensive than a Wednesday or Thursday night in the same hotel. For multi-day stays, there is also a price fluctuation. Our Hotel Booking Pattern analyses show city and property price fluctuations of 6-15% depending on which nights are booked. You can set policies once you understand the patterns in your top cities.

8. Lowest Logical Room Rate

Similar to airline pricing, dynamic hotel rates vary daily for each hotel Some days a favourite hotel will be priced above market and above other negotiated properties. Travellers need to be encouraged to pick the lowest logical property that meets quality standards to ensure they use company money wisely.

Dynamic hotel rates have the power to reduce the required effort needed during hotel sourcing season, and possibly eventually eliminate the season entirely. This does look promising, however the effort doesn’t end when a discount is negotiated. The need for new and better analytics to manage year-round hotel program cost-effectiveness is crucial.

The PredictX Travel platform includes most of these 8 dynamic hotel pricing analytics in one platform. Act now to be sure dynamic hotel pricing delivers the promised value – taking the stress out of hotel season entirely.

Al Norman
By Al Norman
4 min read

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